OPPORTUNITY ZONES – AN UPDATE
Opportunity Zones were implemented as part of the 2017 revisions to the Federal tax code, and are designed to stimulate investment in lower income or lower opportunity areas of the country. My prior blog post discusses the basic concept of the Opportunity Zones, and there have been significant developments over the past year. Each state submitted a list of Opportunity Zones for inclusion in the program to the United States Treasury, and the Treasury certified the list in 2018. There are 8,762 census tracts nationwide that are included in the program, and 72 in Connecticut, including portions of New Haven, Hamden and West Haven.
While the program was created through the tax law changes of 2017, it was not until the regulations implementing the program were issued by the Treasury Department, including a second set of regulations issued in April, 2019 (Read More) that sufficient guidance existed to provide investors enough comfort to start taking advantage of the program. One of the big developments over the past year is the growth of Opportunity Zone Funds. Rather than an investor directly investing eligible capital gains into a specific project, such as by developing and owning a building yourself, the Opportunity Zone Funds allow a more simple investment of your capital into a fund that in turn invests in single or multiple Opportunity Zone projects. There are numerous Opportunity Zone Funds to choose from allowing a potential investors different options and a thus having a better opportunity to assess the risks and potential reward of pursuing an Opportunity Zone investment. It is expected that Opportunity Zone Funds will drive most of the investment into the Opportunity Zones. Access to the Funds may be limited to accredited investors, which are those investors with a large portfolio and high net worth.
However, the Opportunity Zones program has not been without controversy. Some recent articles in the media have highlighted what some people see as objections to the Zones, including the potential effects of displacing existing poorer residents from the areas being redeveloped (i.e. gentrification). See for instance MarketWatch Article. In addition, the selection of certain areas as Opportunity Zones has come under fire for alleged political influence in the selection process (Read More - NY Times Article).
At this point, it is too early to tell if the possible investments in the Opportunity Zones will help to revitalize the targeted areas. Potential investors should review a potential investment in an Opportunity Zone fund as they would any other investment, considering the potential risk and return, and consult with desired professionals before committing any fun